PetroChina brushes off $1.5bn writedown while profit doubles

Bloomberg

PetroChina Co brushed off a $1.5 billion writedown from the disposal of some assets as it estimated full-year net income more than doubled last year thanks to higher crude prices.
China’s biggest oil and gas producer said net income could have jumped as much as 132 percent in 2018, according to a filing to the Hong Kong stock exchange, which cited Chinese accounting standards. That would take it to 52.8 billion yuan ($7.8 billion) for the year, according to Bloomberg calculations, compared with a 61 billion yuan average of 13 estimates that are based on international standards before the announcment.
That’s in spite of a non-recurring loss of as much as 10 billion yuan, on which the company didn’t elaborate beyond saying it disposed of certain oil and gas, as well as fixed, assets that met the conditions to be scrapped under accounting standards. If it weren’t for the writedowns, earnings could have risen as much as 149 percent, PetroChina said.
Analysts at Huatai Financial Holdings (Hong Kong) Ltd lowered their rating on the company’s shares to hold and cut their price target 40 percent after the announcement, telling clients in a note to “buckle up for a bumpy take-off in 2019.”
In addition to a weak fourth quarter due to the write-off and inventory losses because of lower oil prices, Huatai sees PetroChina getting a smaller-than-expected stake in the upcoming national pipeline company and its free cash flow under pressure from an exploration focus on high-cost fields in Xinjiang.
HIGHER BRENT
The higher annual profit by the state-owned energy giant was broadly anticipated after it reported in August that third-quarter profit surged more than fourfold.
The majority of its income comes from exploration and production, so it benefited from global benchmark Brent crude averaging 31 percent higher in 2018 than the previous year, at almost $72 a barrel.
“Despite the significant drop in oil prices in the fourth quarter, the international average crude oil price of 2018 experienced a relatively significant rise,” the company said. It also cited increasing demand for natural gas, as well as production optimisation, broadening income sources and cost-cutting as reasons for the profit increase.
PetroChina shares sank to a three-year low earlier this month amid broader fears over an economic slowdown and concerns that trading troubles similar to losses at peer Sinopec, officially known as China Petroleum & Chemical Corp, could be unearthed.